In the streets, the asphalt is pockmarked and underneath, the pipes that carry water and sewage are badly in need of repairs. But beneath all of it is a heap of debt created through complicated financial agreements that are still being untangled.

The city’s elected officials cannot agree on a way forward. Behind the scenes, the state is pushing ahead toward the sale or lease of the city’s parking garages and incinerator.

If Chapter 9 municipal bankruptcy is the eventual outcome for the city — and some believe it is — it will only happen with the blessing of the state. Under the changes in state law, only the receiver can petition the federal courts and even he can only do so with the blessing of the state Department of Community and Economic Development.

City Controller Dan Miller, who had advocated for bankruptcy protection, said he believes that is where the city is headed.

Miller’s office has continuously projected a $15 million deficit in the city’s budget this year and he points to a missed bond payment in March as further proof of the city’s inability to operate. His latest projections have the city running out of cash in the next several months, at which point it will have to stop paying vendors.

“I don’t think [bankruptcy] is an option, I think it’s a reality,” Miller said. “The reality is we are insolvent.”

It was tacked onto the fiscal code on the last day of the state’s legislative session.

Then, a few months after the legislation banning bankruptcy — and only days after city council moved to file for bankruptcy on Oct. 11, 2011 — the Legislature passed another bill that allowed Corbett to take control of the city’s finances and created the position of the receiver.

Among the receiver’s broad powers outlined in the amendment is the ability to file for bankruptcy on the city’s behalf after the ban expires on July 1.

The section also gives the receiver the ability to act on the city’s behalf during bankruptcy proceedings, but there hasn’t been a receiver since David Unkovic resigned on March 30.

Gov. Tom Corbett on Friday nominated retired Maj. Gen. William Lynch to the post, but his appointment awaits approval by the courts. That could take another 60 days, although Department of Community and Economic Development press secretary Steve Kratz said the administration is hopeful the courts will move quickly to confirm Lynch.

In the meantime, the office has been operating under the control of Fred Reddig, a longtime staff member of the state Department of Community and Economic Development.

Prior to resigning, Unkovic often said he considered bankruptcy an option for the city, even if it was not specifically included in his recovery plan for the city. In a brief introductory press conference on Friday, Lynch did not address bankruptcy — or any of the other specific measures Unkovic laid out in his recovery plan.

Lynch said he was still coming up to speed — he hasn’t yet read the recovery plan — and wouldn’t comment on any “nuts and bolts” issues yet.

But even if there was a receiver who advocated for bankruptcy protection on behalf of the city, any petition by the receiver would still be subject to the approval of Department of Community and Economic Development Secretary C. Alan Walker.

Walker has not publicly commented on Harrisburg’s fiscal situation and has given no indication as to whether or not he would consider bankruptcy an option for the city.

When asked, Kratz only said the department remains focused on naming a new receiver and did not offer any insight into whether or not Walker considers bankruptcy an option.

“It would not be prudent at this time to focus on anything other than the current fiscal recovery efforts and the implementation of the recovery plan that was confirmed by the Court,” he said.

Meanwhile, there are concerns that the legislature may move to renew the ban for another year. The initial ban was justified by arguments that allowing Harrisburg to go into bankruptcy would end up limiting the ability of other cities and towns across the state to get credit and would drive up borrowing costs.

State Sen. Jeffrey Piccola, one of the chief supporters of the original ban, wouldn’t comment this week on the possibility of an extension, but did later indicate one of his frustrations with Unkovic was the perception that he was delaying implementation of the recovery plan to allow the city to move into bankruptcy.

Opponents are concerned that despite the state’s control of the city, the Legislature may push the ban out another year as an insurance policy. That would allow the state to sell or lease off the city’s assets and pay-off creditors without the possibility of bankruptcy before 2013.

City Council has already sought bankruptcy once and was denied. The expiration of the ban is unlikely to affect that case, unless the U.S. appeals courts overturn the ruling of U.S. Bankruptcy Judge Mary France, who rejected the council’s filing.

If that would occur the city council’s petition would have precedence over the state law creating the receivership, as city council petitioned prior to the law’s enactment, said council’s attorney, Attorney Mark Schwartz.

Regardless, France’s December ruling may still impact future actions by the city.

In her written opinion France rejected the council’s filing on grounds that the board did not have the authority to seek bankruptcy protection, both because council did not have Mayor Linda Thompson’s consent and because state law’s prevented it from doing so.

France’s ruling — that Mayor Thompson as the city’s chief executive must approve a bankruptcy filing — could be central to any discussion regarding a potential filing post-July 1, said Attorney Neil Grover, who has watched Harrisburg’s fiscal crises closely.

“There is no way City Council can, on their own, pursue bankruptcy after the moratorium expires after June 30 as the law stands today,” Grover said.

Grover said whether or not the receiver could file for Chapter 9 on his own, or would require approvals of the council and mayor — is a little bit more murky.

There is some precedent. Last year, the state appointed receiver of Central Falls, R.I., filed for bankruptcy on behalf of the beleaguered city.

Unlike Harrisburg, Central Fall’s financial woes stemmed from retirement benefits promised to city employees. Harrisburg has a similar problem, in that it too has unfunded obligations to former employees, but the city’s more than $317 million debt load — created by failed incinerator projects — has been the city’s main driver towards financial distress.

Whether the city can file for bankruptcy — and who would control it — is only one piece of all of the other legal and financial tangles the city has found itself in over the last year.

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